Next Gen Investing

Bitcoin dropped about 50% from its all-time high—but experts warn ‘downturns like this are normal'

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The cryptocurrency market selloff continues on Monday, with its overall value down $130 billion in the last 24 hours alone.

Bitcoin fell below $34,000 Monday morning, and is currently trading at around $36,011, Coin Metrics data shows. Ether is also tumbling, now priced at around $2,373. The two leading cryptocurrencies by market value have dropped about 50% from their all-time highs in November, when bitcoin hit around $69,000 and ether hit $4,878 during a rally on November 10.

This is a possible response to a few factors, including the Federal Reserve's December meeting, where the central bank indicated that it might start to reduce its balance sheetdial back its monetary policy support and potentially raise interest rates.

Though the current plunge might be jarring, this volatility isn't unusual for the cryptocurrency market.

"Long downturns like this are normal with crypto," Tyrone Ross, CEO of Onramp Invest, which provides crypto asset management technology for financial advisors, tells CNBC Make It. "Folks should know that going in, and if you have the means, you should work with an advisor to guide you through these markets."

'Don't watch every tick of the price'

During times like these, "don't watch every tick of the price," Ross says. "Zoom out and look at how crypto has performed the last year or two."

Though cryptocurrency is deemed to be a risky, speculative investment, if you already own it or are planning to buy, experts agree that a buy and hold strategy is usually the best practice. Rather than attempting to trade in the short-term, this strategy promotes holding an asset long-term and riding out the highs and lows.

Anjali Jariwala, certified financial planner, certified public accountant and founder of Fit Advisors, recommends holding bitcoin for at least 10 years. "If you are committed to a strategy that involves crypto, then you need to be comfortable with holding onto the investment for a longer term approach and try to resist the urge to sell when prices dip," she says.

Don't let fear dictate your investment strategy. "Just like any investment, discipline is key," Jariwala says.

"If you bought crypto as something to invest in for the next 10 years, this is the time to remember that," says Douglas Boneparth, certified financial planner and president of Bone Fide Wealth. He has invested in bitcoin since 2014.

Though it's easier said than done, "take a deep breath if you're feeling nervous or scared," Boneparth says. "It's better to focus on things you can control than on things you can't, like the price of any particular investment."

Review your investment strategy

Now might also be a good time to review your investment strategy, Ross says.

To start, he suggests asking yourself the following types of questions:

  • Why did you buy in the first place?
  • Do you feel the same now that it's down about 50%?
  • What's your broader financial goal with crypto, and does this downturn affect that?
  • Is your personal financial situation still secure?

With riskier assets like cryptocurrency, experts recommend keeping your portfolio allocation small. That way, if there is a downturn, you won't lose everything.

Only invest what you can afford to lose

All in all, experts warn to only invest in cryptocurrency what you can afford to lose. As quickly as prices rise, they can tumble back down. 

"For anyone nervous with the drops in bitcoin and other crypto, it is a perfect example of why you shouldn't invest more than you can afford to lose," Jariwala says. "Bitcoin and other cryptocurrencies are highly volatile so the swings that occur are pretty typical of this asset class."

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